Edgar Filing: SUNTRUST BANKS INC

STI-9.30.12-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-08918

SUNTRUST BANKS, INC.

(Exact name of registrant as specified in its charter)



Georgia		58-1575035
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

303 Peachtree Street, N.E., Atlanta, Georgia 30308

(Address of principal executive offices) (Zip Code)

(404) 588-7711

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

ý Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



	Large accelerated filer x	Accelerated filer o
	Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ý

At October 31, 2012, 538,828,728 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding.

TABLE OF CONTENTS



		Page
Glossary of Defined Terms		i - iii

PART I FINANCIAL INFORMATION		iii

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income	1
	Consolidated Statements of Comprehensive (Loss)/Income	2
	Consolidated Balance Sheets	3
	Consolidated Statements of Shareholders’ Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	77
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	120
Item 4.	Controls and Procedures	120

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	121
Item 1A.	Risk Factors	121
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	121
Item 3.	Defaults Upon Senior Securities	121
Item 4.	Mine Safety Disclosures	121
Item 5.	Other Information	121
Item 6.	Exhibits	122

SIGNATURE		122

GLOSSARY OF DEFINED TERMS

ABS — Asset-backed securities.

ACH — Automated clearing house.

AFS — Available for sale.

Agreements — Equity forward agreements.

AIP — Annual Incentive Plan.

ALCO — Asset/Liability Management Committee.

ALM — Asset/Liability Management.

ALLL — Allowance for loan and lease losses.

AOCI — Accumulated other comprehensive income.

ARS — Auction rate securities.

ASU — Accounting standards update.

ATE — Additional termination event.

ATM — Automated teller machine.

Bank — SunTrust Bank.

BCBS — Basel Committee on Banking Supervision.

Board — The Company’s Board of Directors.

CCAR — Comprehensive Capital Analysis and Review.

CDO — Collateralized debt obligation.

CD — Certificate of deposit.

CDS — Credit default swaps.

CIB — Corporate and Investment Banking.

Class A shares — Visa Inc. Class A common stock.

Class B shares —Visa Inc. Class B common stock.

CLO — Collateralized loan obligation.

Coke — The Coca-Cola Company.

Coke Counterparty — a large, unaffiliated financial institution with whom the Company entered into the Agreements.

Coke Stock Split — the two-for-one stock split of shares of The Coca-Cola Company effective August 10, 2012.

Company — SunTrust Banks, Inc.

CP — Commercial paper.

CPP — Capital Purchase Program.

CSA — Credit support annex.

DBRS — Dun and Bradstreet, Inc.

DDA — Demand deposit account.

Dodd-Frank Act — The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

EPS — Earnings per share.

ERISA — Employee Retirement Income Security Act of 1974.

Exchange Act — Securities Exchange Act of 1934.

FASB — Financial Accounting Standards Board.

FDIC — The Federal Deposit Insurance Corporation.

Federal Reserve — The Board of Governors of the Federal Reserve System.

Fed funds — Federal funds.

FFELP — Federal Family Education Loan Program.

FHA — Federal Housing Administration.

FHLB — Federal Home Loan Bank.

FICO — Fair Isaac Corporation.

FINRA — Financial Industry Regulatory Authority.

Fitch — Fitch Ratings Ltd.

FRB — Federal Reserve Board.

FTE — Fully taxable-equivalent.

FVO — Fair value option.

GenSpring — GenSpring Family Offices, LLC.

GSE — Government-sponsored enterprise.

HUD — U.S. Department of Housing and Urban Development.

IFRS — International Financial Reporting Standards.

IIS — Institutional Investment Solutions.

IPO — Initial public offering.

IRLC — Interest rate lock commitment.

ISDA — International Swaps and Derivatives Association.

LGD — Loss given default.

LHFI — Loans held for investment.

LHFI-FV — Loans held for investment carried at fair value.

LHFS — Loans held for sale.

LIBOR —London InterBank Offered Rate.

LOCOM – Lower of cost or market.

LTI — Long-term incentive.

LTV— Loan to value.

MBS — Mortgage-backed securities.

MD&A — Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Moody’s — Moody’s Investors Service.

MSR — Mortgage servicing right.

MVE — Market value of equity.

NEO — Named executive officers.

NII — Net interest income.

NOW — Negotiable order of withdrawal account.

NPL — Nonperforming loan.

NPR — Notice of Proposed Rulemaking.

OCC — Office of the Comptroller of the Currency.

OCI — Other comprehensive income.

OREO — Other real estate owned.

OTC — Over-the-counter.

OTTI — Other-than-temporary impairment.

Parent Company — SunTrust Banks, Inc., the parent Company of SunTrust Bank and other subsidiaries of

SunTrust Banks, Inc.

PD — Probability of default.

PPG — Playbook for profitable growth.

QSPE — Qualifying special-purpose entity.

RidgeWorth — RidgeWorth Capital Management, Inc.

ROA — Return on average total assets.

ROE — Return on average common shareholders’ equity.

RSU — Restricted stock unit.

RWA — Risk-weighted assets.

S&P — Standard and Poor’s.

SBA — Small Business Administration.

SEC — U.S. Securities and Exchange Commission.

SERP — Supplemental Executive Retirement Plan.

SPE — Special purpose entity.

STIS — SunTrust Investment Services, Inc.

STM — SunTrust Mortgage, Inc.

STRH — SunTrust Robinson Humphrey, Inc.

SunTrust — SunTrust Banks, Inc.

TARP — Troubled Asset Relief Program.

TDR — Troubled debt restructuring.

Three Pillars —Three Pillars Funding, LLC.

TRS — Total return swaps.

U.S. — United States.

U.S. GAAP — Generally Accepted Accounting Principles in the United States.

U.S. Treasury — The United States Department of the Treasury.

VA —Veterans Administration.

VAR —Value at risk.

VI — Variable interest.

VIE — Variable interest entity.

Visa —The Visa, U.S.A. Inc. card association or its affiliates, collectively.

Visa Counterparty — a financial institution which purchased the Company's Visa Class B shares.

W&IM — Wealth and Investment Management.

PART I – FINANCIAL INFORMATION

The following unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary to comply with Regulation S-X have been included. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2012.

iii



Item 1.	FINANCIAL STATEMENTS (UNAUDITED)

SunTrust Banks, Inc.

Consolidated Statements of Income



	For the Three Months Ended September 30						For the Nine Months Ended September 30
(Dollars in millions and shares in thousands, except per share data) (Unaudited)	2012			2011			2012		2011
Interest Income
Interest and fees on loans		$1,257			$1,296			$3,820		$3,910
Interest and fees on loans held for sale	29			21			84		71
Interest and dividends on securities available for sale:
Taxable interest	132			175			454		517
Tax-exempt interest	4			5			12		16
Dividends¹	8			20			53		61
Trading account interest and other	15			21			48		63
Total interest income	1,445			1,538			4,471		4,638
Interest Expense
Interest on deposits	98			154			342		485
Interest on long-term debt	66			110			244		347
Interest on other borrowings	10			11			29		35
Total interest expense	174			275			615		867
Net interest income	1,271			1,263			3,856		3,771
Provision for credit losses	450			347			1,067		1,186
Net interest income after provision for credit losses	821			916			2,789		2,585
Noninterest Income
Service charges on deposit accounts	172			176			504		509
Other charges and fees	116			130			361		386
Card fees	55			104			183		309
Trust and investment management income	127			134			387		404
Retail investment services	60			58			180		175
Investment banking income	83			68			230		231
Trading income	19			66			145		171
Mortgage production related (loss)/income	(64		)	54			102		56
Mortgage servicing related income	64			58			215		202
Net securities gains²	1,941			2			1,973		98
Other noninterest (loss)/income	(31		)	53			78		157
Total noninterest income	2,542			903			4,358		2,698
Noninterest Expense
Employee compensation	670			642			1,977		1,898
Employee benefits	110			108			363		354
Outside processing and software	171			164			527		484
Net occupancy expense	92			90			267		268
Marketing and customer development	75			41			134		125
Operating losses	71			72			200		161
Regulatory assessments	67			80			179		232
Credit and collection services	65			71			181		182
Equipment expense	49			44			140		132
Other staff expense	41			18			75		53
Consulting and legal fees	40			34			116		77
Other real estate expense	30			62			133		195
Amortization/impairment of goodwill/intangible assets	17			11			39		34
Net loss/(gain) on debt extinguishment	2			(1		)	15		(3		)
Other noninterest expense	226			124			467		375
Total noninterest expense	1,726			1,560			4,813		4,567
Income before provision for income taxes	1,637			259			2,334		716
Provision for income taxes	551			45			710		136
Net income including income/(loss) attributable to noncontrolling interest	1,086			214			1,624		580
Net income/(loss) attributable to noncontrolling interest	9			(1		)	22		7
Net income		$1,077			$215			$1,602		$573
Net income available to common shareholders		$1,066			$211			$1,581		$424
Net income per average common share:
Diluted		$1.98			$0.39			$2.94		$0.81
Basic	1.99			0.40			2.96		0.81
Dividends declared per common share	0.05			0.05			0.15		0.07
Average common shares - diluted	538,699			535,395			537,538		524,888
Average common shares - basic	534,506			531,928			533,859		521,248

¹Includes dividends on common stock of The Coca-Cola Company of $14 million during the three months ended September 30, 2011, $31 million during the nine months ended September 30, 2012, and $42 million during the nine months ended September 30, 2011.

²Includes credit-related OTTI losses of $3 million and $7 million for the three and nine months ended September 30, 2012, respectively, and $0 and $2 million for the three and nine months ended September 30, 2011, respectively. There were no non-credit related unrealized OTTI losses recorded in OCI, before taxes, for the three and nine months ended September 30, 2012 and 2011.

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Comprehensive (Loss)/Income



	For the Three Months Ended September 30					For the Nine Months Ended September 30
(Dollars in millions) (Unaudited)	2012			2011		2012			2011
Net income		$1,077			$215		$1,602			$573
Components of other comprehensive (loss)/income:
Change in net unrealized gains on securities, net of tax of ($795), $100, ($688), and $170, respectively	(1,448		)	173		(1,256		)	294
Change in net unrealized gains on derivatives, net of tax of $111, $105, $15, and $74, respectively	204			182		34			129
Change related to employee benefit plans, net of tax of $3, $2, ($13), and ($7), respectively	5			4		(23		)	(13		)
Total other comprehensive (loss)/income	(1,239		)	359		(1,245		)	410
Total comprehensive (loss)/income		($162	)		$574		$357			$983

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Balance Sheets



	As of
(Dollars in millions and shares in thousands) (Unaudited)	September 30, 2012			December 31, 2011
Assets
Cash and due from banks		$4,655			$3,696
Securities purchased under agreements to resell	930			792
Interest-bearing deposits in other banks	22			21
Cash and cash equivalents	5,607			4,509
Trading assets (including encumbered securities of $614 as of September 30, 2012 and $574 as of December 31, 2011)	6,381			6,279
Securities available for sale	21,467			28,117
Loans held for sale¹ (loans at fair value: $3,222 as of September 30, 2012 and $2,141 as of December 31, 2011)	5,205			2,353
Loans² (loans at fair value: $390 as of September 30, 2012 and $433 as of December 31, 2011)	121,817			122,495
Allowance for loan and lease losses	(2,239		)	(2,457		)
Net loans	119,578			120,038
Premises and equipment	1,578			1,564
Goodwill	6,369			6,344
Other intangible assets (MSRs at fair value: $831 as of September 30, 2012 and $921 as of December 31, 2011)	896			1,017
Other real estate owned	304			479
Other assets	5,796			6,159
Total assets		$173,181			$176,859
Liabilities and Shareholders’ Equity
Noninterest-bearing consumer and commercial deposits		$37,592			$34,359
Interest-bearing consumer and commercial deposits	87,306			91,252
Total consumer and commercial deposits	124,898			125,611
Brokered time deposits (CDs at fair value: $900 as of September 30, 2012 and $1,018 as of December 31, 2011)	2,198			2,281
Foreign deposits	130			30
Total deposits	127,226			127,922
Funds purchased	680			839
Securities sold under agreements to repurchase	1,630			1,644
Other short-term borrowings	6,511			8,983
Long-term debt ³ (debt at fair value: $2,050 as of September 30, 2012 and $1,997 as of December 31, 2011)	10,765			10,908
Trading liabilities	1,458			1,806
Other liabilities	4,512			4,691
Total liabilities	152,782			156,793
Preferred stock, no par value	275			275
Common stock, $1.00 par value	550			550
Additional paid in capital	9,195			9,306
Retained earnings	10,491			8,978
Treasury stock, at cost, and other⁴	(616		)	(792		)
Accumulated other comprehensive income, net of tax	504			1,749
Total shareholders’ equity	20,399			20,066
Total liabilities and shareholders’ equity		$173,181			$176,859

Common shares outstanding	538,821			536,967
Common shares authorized	750,000			750,000
Preferred shares outstanding	3			3
Preferred shares authorized	50,000			50,000
Treasury shares of common stock	11,100			12,954
¹ Includes loans held for sale, at fair value, of consolidated VIEs		$328			$315
² Includes loans of consolidated VIEs	374			3,322
³ Includes debt of consolidated VIEs ($287 at fair value as of September 30, 2012 and $289 as of December 31, 2011)	683			722
⁴ Includes noncontrolling interest held	114			107

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Shareholders’ Equity



(Dollars and shares in millions, except per share data) (Unaudited)	Preferred Stock			Common Shares Outstanding	Common Stock		Additional Paid in Capital			Retained Earnings			Treasury Stock and Other ¹			Accumulated Other Comprehensive Income ²			Total
Balance, January 1, 2011		$4,942		500		$515		$8,403			$8,542			($888	)		$1,616			$23,130
Net income	—			—	—		—			573			—			—			573
Other comprehensive income	—			—	—		—			—			—			410			410
Change in noncontrolling interest	—			—	—		—			—			(8		)	—			(8		)
Common stock dividends, $0.07 per share	—			—	—		—			(37		)	—			—			(37		)
Preferred stock dividends, $3,044 per share	—			—	—		—			(5		)	—			—			(5		)
U.S. Treasury preferred stock dividends, $1,236 per share	—			—	—		—			(60		)	—			—			(60		)
Accretion of discount for preferred stock issued to U.S. Treasury	6			—	—		—			(6		)	—			—			—
Repurchase of preferred stock issued to U.S. Treasury	(4,776		)	—	—		—			(74		)	—			—			(4,850		)
Purchase of outstanding warrants							(11		)										(11		)
Issuance of common stock	—			35	35		982			—			—			—			1,017
Stock compensation expense	—			—	—		9			—			—			—			9
Restricted stock activity	—			2	—		(57		)	—			49			—			(8		)
Amortization of restricted stock compensation	—			—	—		—			—			25			—			25
Issuance of stock for employee benefit plans and other	—			—	—		(12		)	—			27			—			15
Balance, September 30, 2011		$172		537		$550		$9,314			$8,933			($795	)		$2,026			$20,200
Balance, January 1, 2012		$275		537		$550		$9,306			$8,978			($792	)		$1,749			$20,066
Net income	—			—	—		—			1,602			—			—			1,602
Other comprehensive loss	—			—	—		—			—			—			(1,245		)	(1,245		)
Change in noncontrolling interest	—			—	—		—			—			7			—			7
Common stock dividends, $0.15 per share	—			—	—		—			(81		)	—			—			(81		)
Preferred stock dividends, $3,056 per share	—			—	—		—			(8		)	—			—			(8		)
Exercise of stock options and stock compensation expense	—			1	—		(35		)	—			51			—			16
Restricted stock activity	—			1	—		(64		)	—			69			—			5
Amortization of restricted stock compensation	—			—	—		—			—			22			—			22
Issuance of stock for employee benefit plans and other	—			—	—		(12		)	—			27			—			15
Balance, September 30, 2012		$275		539		$550		$9,195			$10,491			($616	)		$504			$20,399

¹At September 30, 2012, includes ($673) million for treasury stock, ($57) million for compensation element of restricted stock, and $114 million for noncontrolling interest.

At September 30, 2011, includes ($858) million for treasury stock, ($58) million for compensation element of restricted stock, and $121 million for noncontrolling interest.

²Components of AOCI at September 30, 2012, included $607 million in unrealized net gains on AFS securities, $603 million in unrealized net gains on derivative financial instruments, and ($706) million related to employee benefit plans. At September 30, 2011, components included $1,820 million in unrealized net gains on AFS securities, $661 million in unrealized net gains on derivative financial instruments, and ($455) million related to employee benefit plans.

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Cash Flows



	Nine Months Ended September 30
(Dollars in millions) (Unaudited)	2012			2011
Cash Flows from Operating Activities
Net income including income attributable to noncontrolling interest		$1,624			$580
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion	567			563
Origination of mortgage servicing rights	(244		)	(183		)
Provisions for credit losses and foreclosed property	1,191			1,309
Mortgage repurchase provision	701			287
Net securities gains	(1,973		)	(98		)
Net gain on sale of loans held for sale, loans, and other assets	(865		)	(309		)
Net (increase)/decrease in loans held for sale	(199		)	2,146
Net decrease/(increase) in other assets	457			(556		)
Net decrease in other liabilities	(313		)	—
Net cash provided by operating activities	946			3,739
Cash Flows from Investing Activities
Proceeds from maturities, calls, and paydowns of securities available for sale	5,431			3,903
Proceeds from sales of securities available for sale	4,195			11,585
Purchases of securities available for sale	(3,097		)	(15,664		)
Proceeds from maturities, calls, and paydowns of trading securities	—			132
Proceeds from sales of trading securities	—			102
Net increase in loans, including purchases of loans	(4,833		)	(5,018		)
Proceeds from sales of loans	2,041			499
Capital expenditures	(168		)	(78		)
Payments related to acquisitions, including contingent consideration	(13		)	(20		)
Proceeds from the sale of other real estate owned and other assets	363			481
Net cash provided by/(used in) investing activities	3,919			(4,078		)
Cash Flows from Financing Activities
Net (decrease)/increase in total deposits	(696		)	3,207
Net (decrease)/increase in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings	(2,645		)	1,416
Proceeds from the issuance of long-term debt	4,000			1,039
Repayment of long-term debt	(4,359		)	(1,255		)
Proceeds from the issuance of common stock	—			1,017
Repurchase of preferred stock	—			(4,850		)
Purchase of outstanding warrants	—			(11		)
Common and preferred dividends paid	(89		)	(102		)
Other financing activities	22			—
Net cash (used in)/provided by financing activities	(3,767		)	461
Net increase in cash and cash equivalents	1,098			122
Cash and cash equivalents at beginning of period	4,509			5,378
Cash and cash equivalents at end of period		$5,607			$5,500
Supplemental Disclosures:
Loans transferred from loans held for sale to loans		$34			$53
Loans transferred from loans to loans held for sale	3,112			657
Loans transferred from loans and loans held for sale to other real estate owned	304			570
Accretion of discount for preferred stock issued to the U.S. Treasury	—			80

See Notes to Consolidated Financial Statements (unaudited).

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could vary from these estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

The Company evaluated subsequent events through the date its financial statements were issued.

These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. During the three months ended September 30, 2012, the Company elected to revise its credit policy related to the nonaccrual status and timing of charge-off recognition of second lien loans. The Company began classifying second lien loans as nonaccrual when the first lien loan is classified as nonaccrual, even if the second lien loan is performing, and as a result, the Company reclassified $81 million of performing second lien loans to nonaccrual. Additionally, the Company previously charged-off second lien loans at 180 days past due, but implemented a change in policy in the third quarter of 2012 to recognize the charge-off at 120 days past due as the analysis indicated that when a second lien loan becomes 120 days past due, the vast majority of these loans ultimately experience a charge-off. The change in credit policy resulted in $65 million of incremental charge-offs during the three and nine months ended September 30, 2012.

Except for accounting policies that have been recently adopted as described below, and the policy change related to second lien loans noted above, there have been no significant changes to the Company’s accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The primary purpose of the ASU was to conform the language in the fair value measurements guidance in U.S. GAAP and IFRS. The ASU also clarified how to apply existing fair value measurement and disclosure requirements. Further, the ASU required additional disclosures about transfers between level 1 and 2 of the fair value hierarchy, quantitative information for level 3 inputs, and the level of the fair value measurement hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. The ASU was effective for the interim reporting period ending March 31, 2012. The Company adopted the standard as of January 1, 2012, and the required disclosures are included in Note 12, “Fair Value Election and Measurement.” The adoption did not impact the Company’s financial position, results of operations, or EPS.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” The ASU requires presentation of the components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. The update does not change the items presented in OCI and does not affect the calculation or reporting of EPS. In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items out of Accumulated Other Comprehensive Income in ASU 2011-05,” which deferred the effective date for the amendments to the reclassification of items out of AOCI. In June 2012, the FASB decided that the presentation requirements deferred in ASU 2011-12 would not be reinstated. The guidance, with the exception of reclassification adjustments, was effective on January 1, 2012, and must be applied retrospectively for all periods presented. The Company adopted the standard as of January 1, 2012, and the required disclosures are included in the Consolidated Statements of Comprehensive (Loss)/Income. The adoption did not impact the Company’s financial position, results of operations, or EPS.

In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” The ASU amends interim and annual goodwill impairment testing requirements such that an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The guidance was effective for annual and interim goodwill impairment tests beginning on or after January 1, 2012. The Company adopted the standard as of January 1, 2012. The adoption did not have an impact on the Company's financial position, results of operations, or EPS.

Notes to Consolidated Financial Statements (Unaudited), continued

In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment." The ASU permits entities to perform an optional qualitative assessment for determining whether it is more likely than not that an indefinite-lived intangible asset is impaired. The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company has evaluated this ASU and it is not expected to impact the Company's financial position, results of operations, or EPS when adopted.

In October 2012, the FASB issued ASU 2012-04, “Technical Corrections and Improvements." The ASU prescribes technical corrections and improvements to the Accounting Standards Codification for source literature amendments, guidance clarification and reference corrections, and relocated guidance within the Accounting Standards Codification. The ASU is effective for fiscal periods beginning after December 15, 2012. The Company is evaluating the impact of the ASU; however, it is not expected to have a significant impact on the Company's financial position, results of operations, or EPS.

NOTE 2 – SECURITIES AVAILABLE FOR SALE

Securities Portfolio Composition



	September 30, 2012
(Dollars in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. Treasury securities		$213		$11		$—		$224
Federal agency securities	1,713		89		—		1,802
U.S. states and political subdivisions	343		18		6		355
MBS - agency	16,705		881		—		17,586
MBS - private	213		4		—		217
ABS	260		5		4		261
Corporate and other debt securities	42		4		—		46
Other equity securities¹	975		1		—		976
Total securities AFS		$20,464		$1,013		$10		$21,467

	December 31, 2011
(Dollars in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. Treasury securities		$671		$23		$—		$694
Federal agency securities	1,843		89		—		1,932
U.S. states and political subdivisions	437		21		4		454
MBS - agency	20,480		743		—		21,223
MBS - private	252		—		31		221
CDO/CLO securities	50		—		—		50
ABS	460		11		7		464
Corporate and other debt securities	49		2		—		51
Coke common stock	—		2,099		—		2,099
Other equity securities¹	928		1		—		929
Total securities AFS		$25,170		$2,989		$42		$28,117

¹At September 30, 2012, other equity securities included the following securities at cost: $432 million in FHLB of Atlanta stock, $401 million in Federal Reserve Bank stock, and $141 million in mutual fund investments. At December 31, 2011, other equity securities included the following securities at cost: $342 million in FHLB of Atlanta stock, $398 million in Federal Reserve Bank stock, and $187 million in mutual fund investments.

Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $8.1 billion and $9.1 billion as of September 30, 2012 and December 31, 2011, respectively. As of September 30, 2012 and December 31, 2011, there were no securities AFS pledged under which the transferee may repledge the collateral. The Company has also pledged $939 million and $770 million of certain other marketable securities and cash equivalents to secure $907 million and $747 million of repurchase agreements as of September 30, 2012 and December 31, 2011, respectively.

Notes to Consolidated Financial Statements (Unaudited), continued

During the three months ended September 30, 2012, the Company terminated the Agreements that hedged the Coke common stock, and the Company sold, in the market or to the Coke Counterparty, 59 million of its 60 million shares of Coke and contributed the remaining 1 million shares of Coke to the SunTrust Foundation for a net gain of $1.9 billion. The contribution to the SunTrust Foundation increased noninterest expense by $38 million during the three and nine months ended September 30, 2012. Details of the transactions are discussed in Note 10, "Derivative Financial Instruments."

The amortized cost and fair value of investments in debt securities at September 30, 2012, by estimated average life, are shown below. Actual cash flows may differ from estimated average lives and contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.



	Distribution of Maturities
(Dollars in millions)	1 Year or Less			1-5 Years			5-10 Years			After 10 Years			Total
Amortized Cost:
U.S. Treasury securities		$11			$202			$—			$—			$213
Federal agency securities	153			1,349			84			127			1,713
U.S. states and political subdivisions	103			172			19			49			343
MBS - agency	947			14,539			1,027			192			16,705
MBS - private	—			129			84			—			213
ABS	159			71			2			28			260
Corporate and other debt securities	4			21			17			—			42
Total debt securities		$1,377			$16,483			$1,233			$396			$19,489
Fair Value:
U.S. Treasury securities		$11			$213			$—			$—			$224
Federal agency securities	155			1,420			95			132			1,802
U.S. states and political subdivisions	105			184			19			47			355
MBS - agency	1,006			15,294			1,082			204			17,586
MBS - private	—			130			87			—			217
ABS	160			69			2			30			261
Corporate and other debt securities	4			22			20			—			46
Total debt securities		$1,441			$17,332			$1,305			$413			$20,491

Weighted average yield ¹	3.47		%	2.95		%	3.68		%	3.38		%	3.03		%

¹Average yields are based on amortized cost and presented on a fully taxable-equivalent basis.

Securities in an Unrealized Loss Position

The Company held certain investment securities having unrealized loss positions. Market changes in interest rates and credit spreads may result in temporary unrealized losses as the market price of securities fluctuates. As of September 30, 2012, the Company did not intend to sell these securities nor was it more-likely-than-not that the Company would be required to sell these securities before their anticipated recovery or maturity. The Company has reviewed its portfolio for OTTI in accordance with the accounting policies outlined in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Notes to Consolidated Financial Statements (Unaudited), continued



	September 30, 2012
	Less than twelve months				Twelve months or longer				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Temporarily impaired securities:
Federal agency securities		$30		$—		$—		$—		$30		$—
U.S. states and political subdivisions	—		—		25		6		25		6
MBS - agency	49		—		—		—		49		—
ABS	—		—		12		2		12		2
Total temporarily impaired securities	79		—		37		8		116		8
Other-than-temporarily impaired securities¹:
MBS - private	—		—		46		—		46		—
ABS	—		—		4		2		4		2
Total other-than-temporarily impaired securities	—		—		50		2		50		2
Total impaired securities		$79		$—		$87		$10		$166		$10

	December 31, 2011
	Less than twelve months				Twelve months or longer				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Temporarily impaired securities:
Federal agency securities		$10		$—		$—		$—		$10		$—
U.S. states and political subdivisions	1		—		28		4		29		4
MBS - agency	224		—		1		—		225		—
CDO/CLO securities	50		—		—		—		50		—
ABS	—		—		11		5		11		5
Total temporarily impaired securities	285		—		40		9		325		9
Other-than-temporarily impaired securities¹:
MBS - private	15		1		206		30		221		31
ABS	1		—		3		2		4		2
Total other-than-temporarily impaired securities	16		1		209		32		225		33
Total impaired securities		$301		$1		$249		$41		$550		$42

¹Includes OTTI securities for which credit losses have been recorded in earnings in current or prior periods.

At September 30, 2012 and December 31, 2011, unrealized losses on securities that have been in a temporarily impaired position for longer than twelve months include municipal ARS and one ABS collateralized by 2004 vintage home equity loans. The municipal securities are backed by investment grade rated obligors; however, the fair value of these securities continues to be impacted by the lack of a functioning ARS market and the extension of time for expected refinance and repayment. No credit loss is expected on these securities. The ABS is also highly-rated, continues to receive timely principal and interest payments, and is evaluated quarterly for credit impairment. Cash flow analysis shows that the underlying collateral can withstand highly stressed loss assumptions without incurring a credit loss.

The portion of unrealized losses on securities that have been other-than-temporarily impaired that relates to factors other than credit are recorded in AOCI. Losses related to credit impairment on these securities is determined through estimated cash flow analyses and have been recorded in earnings in current or prior periods. The unrealized OTTI loss relating to ABS at September 30, 2012 is related to three securities within the portfolio that are 2003 and 2004 vintage home equity issuances. The expectation of cash flows for the previously impaired ABS securities has improved since the credit-related impairment was recognized, and as a result, the amount of expected credit losses was reduced, and the expected increase in cash flows is being accreted into earnings as a yield adjustment over the remaining life of the securities.

Notes to Consolidated Financial Statements (Unaudited), continued

Realized Gains and Losses and Other-than-Temporarily Impaired Securities



	Three Months Ended September 30							Nine Months Ended September 30
(Dollars in millions)	2012				2011			2012				2011
Gross realized gains		$1,944		¹		$4			$1,980		¹		$180
Gross realized losses	—				(2		)	—				(80		)
OTTI	(3		)		—			(7		)		(2		)
Net securities gains		$1,941				$2			$1,973				$98

¹Included in these amounts are $305 million in losses recognized during the three and nine months ended September 30, 2012 related to the termination of the Agreements that hedge the Coke common stock.

The securities that gave rise to credit impairments recognized during the three and nine months ended September 30, 2012, as shown in the table below, consisted of private MBS with a fair value of $217 million. The securities impacted by credit impairment during the nine months ended September 30, 2011, consisted of private MBS with a fair value of $176 million at September 30, 2011. Credit impairment that is determined through the use of cash flow models is estimated using cash flows on security specific collateral and the transaction structure. Future expected credit losses are determined by using various assumptions, the most significant of which include default rates, prepayment rates, and loss severities. For the majority of the securities that the Company has reviewed for credit-related OTTI, credit information is available and modeled for the collateral underlying each security. As part of that analysis, the model incorporates loan level information such as loan to collateral values, FICO scores, and home price appreciation/depreciation data specific to the geography of the loan. These inputs are updated on a regular basis to ensure the most current credit and other assumptions are utilized in the analysis. If, based on this analysis, the Company does not expect to recover the entire amortized cost basis of the security, the expected cash flows are then discounted at the security’s initial effective interest rate to arrive at a present value amount. OTTI credit losses reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of these securities. During the three and nine months ended September 30, 2012 and the nine months ended September 30, 2011, all OTTI recognized in earnings on private MBS have underlying collateral of residential mortgage loans securitized in 2007. There were no OTTI losses recognized during the three months ended September 30, 2011.

The Company has not purchased any new private MBS during the nine months ended September 30, 2012, and continues to reduce existing exposure primarily through paydowns. In certain instances, the amount of impairment losses recognized in earnings includes credit losses on debt securities that exceeds the total impairment, and as a result, the securities may have unrealized gains in AOCI relating to factors other than credit.



	Three Months Ended September 30				Nine Months Ended September 30
	2012		2011		2012		2011
(Dollars in millions)	MBS - Private		MBS - Private		MBS - Private		MBS - Private
OTTI¹		$3		$—		$7		$3
Portion of losses recognized in OCI (before taxes)	—		—		—		(1		)
Net impairment losses recognized in earnings		$3		$—		$7		$2

¹ The initial OTTI amount represents the excess of the amortized cost over the fair value of AFS debt securities. For subsequent impairments of the same security, amount includes additional declines in the fair value subsequent to the previously recorded OTTI, if applicable, until such time the security is no longer in an unrealized loss position, plus any additional credit losses taken through earnings that exceeds the total impairment.

Notes to Consolidated Financial Statements (Unaudited), continued

The following is a rollforward of credit losses recognized in earnings for the three and nine months ended September 30, 2012 and 2011, related to securities for which the Company does not intend to sell and it is not more-likely-than-not that the Company will be required to sell. Subsequent credit losses may be recorded on securities without a corresponding further decline in fair value when there has been a decline in expected cash flows:



	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in millions)	2012		2011		2012			2011
Balance, beginning of period		$28		$21		$25			$20
Additions:
OTTI credit losses on previously impaired securities	3		—		7			2
Reductions:
Increases in expected cash flows recognized over the remaining life of the securities	—		—		(1		)	(1		)
Balance, end of period		$31		$21		$31			$21

The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private MBS for the nine months ended September 30:



	2012	2011
Default rate	2 - 9%	4 - 8%
Prepayment rate	7 - 21%	12 - 22%
Loss severity	40 - 56%	39 - 44%

Assumption ranges represent the lowest and highest lifetime average estimates of each security for which credit losses were recognized in earnings. During the first nine months of 2012, there was improvement in the default estimates for certain credit impaired bonds; however, slower prepayment speeds and higher severity rates resulted in the recognition of additional impairment.

Notes to Consolidated Financial Statements (Unaudited), continued

NOTE 3 - LOANS

Composition of Loan Portfolio

The composition of the Company's loan portfolio is shown in the following table:



(Dollars in millions)	September 30, 2012		December 31, 2011
Commercial loans:
Commercial & industrial		$52,407		$49,538
Commercial real estate	4,491		5,094
Commercial construction	808		1,240
Total commercial loans	57,706		55,872
Residential loans:
Residential mortgages - guaranteed	4,823		6,672
Residential mortgages - nonguaranteed¹	23,925		23,243
Home equity products	15,019		15,765
Residential construction	805		980
Total residential loans	44,572		46,660
Consumer loans:
Guaranteed student loans	5,823		7,199
Other direct	2,341		2,059
Indirect	10,781		10,165
Credit cards	594		540
Total consumer loans	19,539		19,963
LHFI		$121,817		$122,495
LHFS		$5,205		$2,353

¹Includes $390 million and $431 million of loans carried at fair value at September 30, 2012 and December 31, 2011, respectively.

During the three months ended September 30, 2012 and 2011, the Company transferred $2.0 billion and $459 million in LHFI to LHFS, and $3 million and $7 million in LHFS to LHFI, respectively. Additionally, during the three months ended September 30, 2012 and 2011, the Company sold $649 million and $202 million in loans and leases for gains of $9 million and $10 million, respectively.

During the nine months ended September 30, 2012 and 2011, the Company transferred $3.1 billion and $657 million in LHFI to LHFS, and $34 million and $53 million in LHFS to LHFI, respectively. Additionally, during the nine months ended September 30, 2012 and 2011, the Company sold $2.0 billion and $479 million in loans and leases for gains of $62 million and $20 million, respectively. There were no other material sales of LHFI during the three and nine months ended September 30, 2012 and 2011.

Credit Quality Evaluation

The Company evaluates the credit quality of its loan portfolio by employing a dual internal risk rating system, which assigns both PD and LGD ratings to derive expected losses. Assignment of PD and LGD ratings are predicated upon numerous factors, including consumer credit risk scores, rating agency information, borrower/guarantor financial capacity, LTV ratios, collateral type, debt service coverage ratios, collection experience, other internal metrics/analysis, and qualitative assessments.

For the commercial portfolio, the Company believes that the most appropriate credit quality indicator is the individual loan’s risk assessment expressed according to regulatory agency classification, Pass or Criticized. The Company's risk rating system is granular, with multiple risk ratings in both the Pass and Criticized categories. Pass ratings reflect relatively low expectations of default. The granularity in Pass ratings assists in the establishment of pricing, loan structures, approval requirements, reserves, and ongoing credit management requirements. Criticized assets have a higher PD. The Company conforms to the following regulatory classifications for Criticized assets: Other Assets Especially Mentioned (or Special Mention), Adversely Classified, Doubtful, and Loss. However, for the purposes of disclosure, management believes the most meaningful distinction within the

Notes to Consolidated Financial Statements (Unaudited), continued

Criticized categories is between Accruing Criticized (which includes Special Mention and a portion of Adversely Classified) and Nonaccruing Criticized (which includes a portion of Adversely Classified, Doubtful, and Loss). This distinction identifies those relatively higher risk loans for which there is a basis to believe that the Company will collect all amounts due from those where full collection is less certain.

Risk ratings are refreshed at least annually, or more frequently as appropriate, based upon considerations such as market conditions, loan characteristics, and portfolio trends. Additionally, management routinely reviews portfolio risk ratings, trends, and concentrations to support risk identification and mitigation activities.

For consumer and residential loans, the Company monitors credit risk based on indicators such as delinquencies and FICO scores. The Company believes that consumer credit risk, as assessed by the industry-wide FICO scoring method, is a relevant credit quality indicator. Borrower-specific FICO scores are obtained at origination as part of the Company’s formal underwriting process, and refreshed FICO scores are obtained by the Company at least quarterly. In response to updates in the industry-wide FICO scoring model and to enhance the Company's ability to manage credit risk, the Company updated its FICO scoring model to this updated version for the Home Equity, Indirect, and Other Direct portfolios in the first quarter of 2012. This change was the primary reason for the changes in the percentage of balances across the FICO score ranges noted below. There was no impact to the Company's financial position or results of operations as a result of updating the FICO scoring model.

For government guaranteed student loans, the Company monitors the credit quality based primarily on delinquency status, as it is a more relevant indicator of credit quality due to the government guarantee. At September 30, 2012 and December 31, 2011, 86% and 79%, respectively, of the guaranteed student loan portfolio was current with respect to payments. Loss exposure to the Company on these loans is mitigated by the government guarantee.

Notes to Consolidated Financial Statements (Unaudited), continued

LHFI by credit quality indicator are shown in the tables below:



	Commercial Loans
	Commercial & industrial				Commercial real estate				Commercial construction
(Dollars in millions)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Credit rating:
Pass		$50,496		$47,683		$3,788		$3,845		$524		$581
Criticized accruing	1,623		1,507		584		961		209		369
Criticized nonaccruing	288		348		119		288		75		290
Total		$52,407		$49,538		$4,491		$5,094		$808		$1,240



	Residential Loans ²
	Residential mortgages - nonguaranteed				Home equity products				Residential construction
(Dollars in millions)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Current FICO score range:
700 and above		$17,550		$16,139		$11,454		$11,084		$594		$661
620 - 699	4,071		4,132		2,339		2,903		137		202
Below 620¹	2,304		2,972		1,226		1,778		74		117
Total		$23,925		$23,243		$15,019		$15,765		$805		$980



	Consumer Loans ³
	Other direct				Indirect				Credit cards
(Dollars in millions)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Current FICO score range:
700 and above		$1,930		$1,614		$8,156		$7,397		$404		$347
620 - 699	343		359		1,992		1,990		145		142
Below 620¹	68		86		633		778		45		51
Total		$2,341		$2,059		$10,781		$10,165		$594		$540

¹For substantially all loans with refreshed FICO scores below 620, the borrower’s FICO score at the time of origination exceeded 620 but has since deteriorated as the loan has seasoned.

²Excludes $4.8 billion and $6.7 billion at September 30, 2012 and December 31, 2011, respectively, of guaranteed residential loans. At both September 30, 2012 and December 31, 2011, the majority of these loans had FICO scores of 700 and above.

³Excludes $5.8 billion and $7.2 billion at September 30, 2012 and December 31, 2011, respectively, of guaranteed student loans.

Notes to Consolidated Financial Statements (Unaudited), continued

The payment status for the LHFI portfolio is shown in the tables below:

As of September 30, 2012

(Dollars in millions)

Accruing

Current

Accruing

30-89 Days

Past Due

Accruing

90+ Days

Past Due

Nonaccruing ²

Total

Commercial loans: